Eurobond market the biggest disaster for Ghana, other emerging economies – Joe Jackson
Director of Operations at Dalex Finance, Joe Jackson, has described the Eurobond market as the single biggest disaster for Ghana’s economy and other emerging economies in Africa.
According to Mr Jackson, the availability of funds on the international debt market coupled with flexible rules on use of capital raised from the Eurobond market, has resulted in over-borrowing by emerging countries like Ghana.
“The Eurobond market is the single biggest disaster to happen to emerging economies in Africa.
“Because there was money available on the Eurobond market and there were no strict rules attached to the use of the funds, African countries borrowed and borrowed until they over-borrowed.
“In Ghana’s case, what did we use the money for? We used it for consumption, for nice things,” he quipped speaking at the Economic Dialogue Series organised by Metro TV and monitored by norvanreports.
Ghana’s Eurobonds issuance tripled from $4.5bn (GHS 36bn) in 2018 to $13.2bn (GHS 105.6bn) by the end of 2021 .
This is per a report brief by policy Think Tank, IMANI Africa on Ghana’s recent return to the IMF.
Per the report, Ghana’s eurobond issuance is the third highest on the African continent following South Africa (2nd place) with $20.6bn in total eurobond issuance and Egypt (1st place) with $37.5bn in total eurobond issuance.
Nigeria and Ivory Coast follows Ghana in 4th and 5th places with total eurobond issuance of $10.7bn and $9.4bn respectively.
The $13.2bn Eurobond issuance, IMANI asserts in its report, forms 17.8% of Ghana’s 2021 GDP.
South Africa was the first to issue Eurobonds in 1995.
To date, 21 African countries have sold Eurobonds worth a combined total of over US$155 billion on international bond markets since 2006, when Seychelles become the second African country to join the Eurobond market.
Eurobonds borrowing is done through commercial terms. The interest rates, term of bond and coupon payments are determined by market conditions.
Because of poor credit ratings and perceptions of high risk, African bonds are classified as high yields. They’re risky, but they offer high returns. Investors are still scrambling for Africa’s high yield bonds.
Eurobonds are costly for governments. The high yields demanded by investors means high-interest cost to governments. But they are attractive to governments because investors buy them without preconditions.
Unlike multilateral concessionary loans that come with policy adjustment conditionalities, governments have total discretion in how to use the proceeds.
They are, however, offered at high interest rates, high coupon payments and shorter debt maturities. This means the government has a shorter period to use the costly funds and will also be paying periodic interest.
The average tenor for Africa’s bonds is 10 years, with interest of 5% to 16%.
This is unsustainable and has already led to more fiscal strain. Interest repayment is the highest expenditure portion and remains the fastest growth expenditure in sub-Saharan Africa’s fiscal budgets.
